Unreasonable Inspection Items?

Question

A little history on the transaction - a Triplex with asking price of $235k, I offered $215k and the seller has countered with $225k.  They have been trying to sell since May 2019 and initial price started at $295k.  The Owner is on the board of HOA for the property.  I accepted the counter and put in the earnest money of $1k. This will be an FHA loan so anything safety-related will need to be fixed prior to the Loan's closing.

I had a home inspector came in on Friday and the inspector provided an extensive list (40-pg) long.  I intend to waive the minor inspection items (such as creaking floor, handrail bolts, etc.) but I was hoping that the Seller would be able to repair the following list of items:

14012: Replacement of decayed siding as identified in inspection   report (at southern façade and above the evergreens around entrance).  Soffit damage due to woodpeckers to be   repaired.

14008: Install beams to prevent further movement, and seal basement

14012: Replace wooden beam due to termite damage (located overhead,   by stairs).  Need termite treatment to   prevent future infestation.

14008: Repair cracked rafter

14010 and 14012: Replacement of damaged shingles.

14008: Remove clog from vent pipe

14010: Address orphaned water heater vent pipe to prevent damage to   flue gas line and/or chimney

14008 and 14012: Install proper venting system for medium efficiency   furnace

14012: Repair cracked kitchen window.

General: Retaining wall failure to be repaired (or documentation of   HOA’s responsibility)

Marc Winter · Answer

The FHA appraisal will find most of the same items, and they will have to be fixed or deal canceled.  One exception--termite treatment in advance to prevent future infestation--that won't fly IMO.

Remember, in any negotiation, the one who wants it most LOSES.  Always be ready to walk.

Jonathan Greene · Answer

If the seller knows you are coming in with an FHA loan, they (or their agent) should know that these issues must be addressed to close the sale. Those items you listed are almost all must-be-done items for an FHA inspection and will not be cleared to close without them. For the loan to close, those items will need to be done in advance, so the money has to be agreed upon upfront to secure the deal. I don't agree with cosmetic repair requests and they drive me crazy, these are reasonable requests and if you plan on splitting the difference with the seller, I would be firm and then walk. You are handling it amicably and reasonably.

Pat L. · Answer

Absolutely you can always come back. We have literally pi$$ed off a lot of sellers with our realistic offers given our tight margins & yet several months later some have come back to the table.

...our 12% note. WE always try to sell our free & clear properties with us holding the financing @ 12-14%...it's a gift that keeps on giving & giving & giving....

Eka Linwood · Answer

@Pat L.

That is exactly what I was thinking! Let the Seller decide to get back to us.  We can come back to the table to re-negotiate.  I didn't quite understand your comment about the 12% note though...

Pat L. · Answer

They tried to sell it @ $295k & it's down a LOT, so I would assume you're not the only one who has had a decent extensive & impressive inspection completed. Most agents balk at a significant concession because it affects their 'hard earned' commission so go with it, push hard & let it fly. They can always say no or come back somewhere more amenable.

As an aside, we have done exactly that with an extensive inspection in hand & we got it at our price. The repairs did come back over the years & the concessions we got made it a profitable deal. We eventually sold it for a very nice profit, hold the note @ 12% & all the repairs we had completed passed their inspector.

Eka Linwood · Answer

@Jonathan Greene

Thanks for that comment - I am prepared to walk away but I do think that the cash flow would still work even if the Seller doesn't address ALL of the inspection items. The wooden beam, for example, is something that I will not compromise on and will want the seller to repair.

@Marc Winter

That's a great point - I did hesitate on that and would probably be fine with getting the termite treatment myself but since there's a current issue on termite damage I thought it's reasonable to ask.

@Brian Pulaski

I have only shared the price estimate with my buyer's agent and haven't talked with any contractors yet so I have estimated fairly high (about 18k for all inspection items).  I would rather not tell them what I can accept as a "give back" if they repair nothing though - ideally, this number would come from the seller as a counter.  Is this not the typical practice?

Brian Pulaski · Answer

What price estimates did you share that changed their tone? That list doesn’t seem terrible, but then again a normal seller may be scared, especially if you told them you estimate a large repair bill. Have you told them what you would accept as a “give back” for them to repair nothing?

Eka Linwood · Answer

@Jonathan Greene The Seller has not made any statement that this will be an "As-Is" transaction.  I completely agree - I don't mind splitting the difference in half and take them in credits instead.  In fact, if the Seller doesn't address these issues - I intend to address them myself when I am occupying the units.

Also, the units are currently completely rented out so the Seller is probably in no-rush to sell and probably trying to get as much money from the transaction too. I don't mind paying a fair price but I am afraid if these items are not addressed, the FHA appraiser may take issues on some of these.

Jonathan Greene · Answer

In a vacuum, this list is totally reasonable in my opinion. Everything you noted is fairly important and should be addressed by a traditional seller. However, it really depends on how the transaction was listed and presented. Was it presented as an as-is transaction? If so, I always say to the seller, "the inspection brought up some areas of major concern. Would you like to negotiate this or would you rather cancel the transaction? I know it was listed as-is, but my inspection revealed too many items that I feel all buyers would want addressed." Something like that. If they don't want to negotiate or do repairs, it is on them. You also can't expect to get full value repairs on all of this. Inspection repair requests are a negotiation. You best bet is to summarize the repair costs and ask for half.

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